The European Central Bank is expected to announce a big bond-buying programme at lunchtime today, aimed at revitalising the euro zone economy.
From March, the bank could make asset purchases of €50 billion a month until the end of 2016. The programme would be designed to counter low euro zone inflation, to increase the amount of money available to financial institutions and to encourage lending by banks. Axel Weber - former president of Germany's central bank - has said he does not think there QE will fix the euro zone's problems. And Andrew Sentance - a former member of the Bank of England's Monetary Policy Committee - said the euro zone is not the environment where QE is going to be effective
Garret Grogan, Head of Interest Rate Trading at Bank of Ireland Global Markets, says that a €50 billion a month QE programme from March would raise the ECB's balance sheet by between €600 billion and €1 trillion, which would bring it to 30% of GDP. This would represent a bigger QE programme than that of the UK or US, which brought the Bank of England Federal Reserve balance sheets to about 25% of GDP, he explains. Mr Grogan says the aim of QE is to counter disinflation and act as a shot in the arm to stagnant economies - it should lower the cost of borrowing for European governments, which in theory should increase the availability of credit across the euro zone. More importantly, via a wealth effect, it could also potentially boost equity markets. That effect has been seen in both the US and UK and more recently in Japan, he adds.
From an Irish perspective, the trader says that the QE moves should weaken the euro which will be good for the country's export-led recovery as it makes our goods and services cheaper abroad. The euro has fallen by 17% against the dollar since the middle of last year and has fallen by 4.5% alone this month on expectations of the ECB move. The euro-sterling rate is also down 9% since last March, he says. Mr Grogan says he feels that the ECB is marginally late to the QE game as the euro zone is now five years into the financial crisis. Inflation is the main problem in the euro zone and prices are expected to fall even further from the current inflation rate of -0.2%. If the ECB can boost inflation, then QE will have worked in the euro zone, he states.
MORNING BRIEFS - US e-commerce giant eBay is planning to cut 2,400 jobs - or about 7% of its workforce - in the first three months of this year. It made the announcements as it published its results overnight. The move comes ahead of a plan to split from its online payment PayPal business this year. The job cuts will range across its eBay Marketplaces, PayPal, and eBay Enterprise units. EBay's results beat expectations - profit in the last three months of the year rose to $936m on $4.9 billion in revenue. EBay bought PayPal in 2002 for $1.5 billion, and the payments company is now eBay's fastest-growing business. Its payment system is available in 203 markets and processed a billion mobile payments last year. The split will happen later this year. Paypal employs around 2,500 people across sites in Dublin and Dundalk. It is not yet clear whether jobs in the Irish operations will be effected.
*** Irish companies are among the top performers for innovation in the EU, according to new figures from Eurostat. Close to 60% of Irish companies recorded innovation activity between 2010 and 2012, making them the third most innovative in Europe, after Germany and Luxembourg. The EU average level was 48.9%. Innovation activities refer to product and process innovation as well as organisational and marketing innovation.